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Back End DTI and Full Transcript Pull Questions


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Hello, been a while since I have posted on CB!  

Quick overview - looking to sell my current home and downsize and consolidate a little bit.  
Mortgage Scores 700+ and likely 725 middle for both borrowers (Non Mortgage scores 750+)

I am trying to figure out our budget based on DTI and have a couple of questions that will help.  Thanks in Advance. 

1. I am currently in a repayment plan with IRS - 500 per month - current.  
2. My MAIN income is W-2 but I also have a 1099 side gig that generates about 15% of my income (but far less than 25% I read about a lot)
3. My wife is on long term disability we are hoping to include her income in DTI calculations

My questions are:

IF to get to the budget we need I have to use my 1099 income - will that trigger a full transcript pull?   This is important obviously because we will need to include the 500 per month IRS payment in my DTI.  That may or may not be a big deal since the extra income will be allowed then - but just doing some figuring.  

THEN, will my wife's disability require a full transcript pull?  We have never used her before because she had no credit - we have worked on that the last few years and would like to include her this time - plus then we can use her income.  She has no tax issues, but if they pull hers because of the disability income will they then need to pull mine also?  

Finally, what are the conventional back end DTI maximums (front end will be no issue)? I know FHA (which I have always done in past) - will let you go crazy high with good scores - but not sure about conventional - I read 45% but did not know how hard and fast that is.....like I say - FHA can go to 55% sometimes!   

My preference would be to put 20 percent down and then avoid a full transcript - but not sure if by using these other income sources it will require one - and then I need to factor in that payment in the DTI

Again, thanks in advance!

 

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When you say "full transcript," are you talking about the IRS transcripts of your tax returns?

 

For every real-estate financing transaction I've done in the last several years (and probably my lifetime), I've filled out the same 4506-T form. 

 

This includes refinances and purchases with varying LTVs below 80%, as well as HELOCs in both second and in first lien position (no other mortgages on the home / literally 0% existing LTV before getting the HELOC).

 

 

Edited by cv91915
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3 hours ago, cv91915 said:

When you say "full transcript," are you talking about the IRS transcripts of your tax returns?

 

For every real-estate financing transaction I've done in the last several years (and probably my lifetime), I've filled out the same 4506-T form. 

 

This includes refinances and purchases with varying LTVs below 80%, as well as HELOCs in both second and in first lien position (no other mortgages on the home / literally 0% existing LTV before getting the HELOC).

 

 


Yes, always have to sign the 4506T form - BUT - if you are ONLY using W-2 Income - often they just "verify" those W-2 filings WITHOUT actually pulling your full tax transcripts (i.e., how much you paid in taxes etc.)  If you are 1099 for over 25 percent of income - then the lender MUST pull those full transcripts to verify Adjusted Gross Income etc. 

MY question that I cannot seem to find an answer to is whether if you have SOME 1099 income - but NOT 25 percent - is the full transcript pulled - or do they just verify the W-2 and 1099 FILINGS.

Again my reasoning for asking is whether my DTI will REQUIRE the 500 per month IRS payment - which does not show up on CR.  And of course the same type of questions for my wife's disability income.  

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When I've had a nagging need or desire to dig into something like this, I've consulted the Fannie Mae and Freddie Mac underwriting guidelines, which used to be freely available (haven't looked in a very long time).  This is some really dense reading and it's hard to find what you're looking for if you don't do this every day (which I do not!).  :) 

 

The other option is to run a hypothetical loan scenario through Zillow Mortgage Rates and call the fourth and fifth best options (places you're unlikely to use) and ask some probing questions.

 

But before doing any of that, I'd back-calculate how much home you could buy without considering the income that concerns you, and see if you can even get anything you'd want.  

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I think CV has the best advice here.  Call a couple of brokers and ask the questions. 

 

As far as the payments to the IRS go (and other payments) for every mortgage I have taken out, I was required to provide bank statements and pay stubs along with W-2s and the 4506-T.  If you are making regular payments to the IRS or other entity they will see those withdrawals and may ask questions (I was asked about transactions in my bank account), unless you plan on not disclosing those accounts, which could lead to further consequences down the road.

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First, it's my understanding that the mortgage agencies (FNMA, etc.) now strongly encourage lenders to confirm borrower provided tax documents against actual tax data supplied by the IRS via Form 4506-C (formerly 4506-T) in order to combat possible fraud.

 

Using that Form, a lender may merely request a summary of a tax return for a given year, or may also request a transcript of liability and payments.   Your $500 payment obligation would be detailed on the latter.  While your lender may to request this, I'd presume that they ask for it along with the tax year detail.

 

I'll discuss lender ratios by anecdote:  We financed a new house purchase in Dec 2019 in advance of selling our current home.  Because my wife recently changed jobs (prompting relocation), her bonus income was disregarded for the mortgage app.  Consequently, our home payments alone took our front end ratio to about 40% (31% w/ bonus),  with the back end at 48%.  DCU was able push the app through underwriting successfully, at prevailing rates ... perhaps because overall we had 30% equity.

 

So, I'll simply note that a strong lender has considerable flexibility in applying ratio guidelines.

 

 

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Posted (edited)

It's been a long time since I've looked closely at a 4506-T.

 

This is from the form we provided to Dee See You for our HELOC last year.

 

wEixxOL.png

 

Note that they didn't select choice 8, which includes "1099" series. 

 

I'm not 100% sure this is an apples-to-apples response to OP's original question, but it did spark some further thought.

 

If you do not claim income you don't have to document it.

 

When we bought our current home we were relocating 2,000 miles away so my spouse could take a new job. 

 

The mortgage underwriter was getting really picky with the documentation she required from my spouse's new employer and we got tired of it, so we just dropped his income from the application and just used mine... so there was nothing needed from his new employer, and problem solved! 

 

Same works with assets.  I always ask how much they want to see in reserves, and then only claim that.  Same principle, it cuts down on the asset documentation you need to supply.

 

On 4/28/2021 at 1:21 PM, cv91915 said:

The other option is to run a hypothetical loan scenario through Zillow Mortgage Rates and call the fourth and fifth best options (places you're unlikely to use) and ask some probing questions.

 

But before doing any of that, I'd back-calculate how much home you could buy without considering the income that concerns you, and see if you can even get anything you'd want.  

 

If you do the DTI calculations without the income that concerns you and find that you can qualify for a suitable home, then call a couple of your second-tier mortgage company choices and validate the theory.

 

Sorry it took me a couple of cycles to get here.

 

 

Edited by cv91915
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